Analysis

The CCP’s Five-Year Plan codified tech innovation (新兴产业投资) as the party’s path to global supremacy. While the Plan did not necessarily reveal new information about the CCP’s ambitions, it clarified the party’s areas of interest: frontier technologies that will not only out-compete the United States, but will create entirely new industries that China intends to dominate. This makes for a contradictory symbiosis between the party and Chinese businesses: the party needs corporations to be “unleashed” (发挥民间投资潜力) so that they produce the necessary innovation for the party’s survival. At the same time, the CCP curtails innovation by demanding strict adherence to its political control so as to maintain authority over the “private” sector. These competing demands mean that the CCP will likely become increasingly integrated within PRC tech companies, adding pressure on firms to out-pace US innovation, fuse corporate priorities with those of the party, and more aggressively expand into global markets.

How China innovates, however, relies on a crucial input bottleneck: talent. PRC tech companies are under immense pressure to not only ensure that personnel with the right skills “return” to the PRC (for those who hold PRC citizenship but work aboard) but also that key workers do not leave the PRC in the first place. This means that there are top-level demands for "party management of talent" (党管人才), a euphemism that demands political control of personnel pipelines to prevent skilled individuals from leaving the PRC. It also means that the party is funding and supporting PRC tech companies to aggressively recruit individuals working abroad–particularly PRC citizens–to relocate back to the PRC, including through massive salary offers and a wide range of other state-supported benefits.

For PRC tech companies, however, it is not always clear what the CCP means by “attracting talent.” Like the uneven rollout of OpenClaw, central government initiatives are often left up to local-level organizations to interpret and implement with limited guidance. Local governments, working with tech companies, are scrambling to fulfil the party’s demands for tech hiring, but there is wide variation in how to do this (and whom to target). Much like how state subsidies in the PRC intentionally create sector-wide arms races to artificially stoke competition, state support for talent acquisition is similarly provoking intense pressure among PRC companies to demonstrate their personnel initiatives, even when doing so is not necessarily in a corporation’s best interest. Consequently, US tech companies need to be aware that both PRC local governments and Chinese tech corporations are chasing political targets that include targeting and hiring the most skilled US tech workers. This also means that Chinese companies are not only targeting the tech “superstars,” but also personnel who translate technical breakthroughs into systemic advantages. Thus, product leads, data engineers, developers, and partnerships staff are all at risk of PRC poaching. 

This system-wide talent targeting strategy has important consequences for US tech companies: the personnel pipelines that they rely on to provide the highest level skills–namely PRC citizens coming to the United States–will shrink. The PRC citizens that these companies currently employ will also face mounting pressures to return to the PRC. Rather, as the Financial Times reports, “This is not just a trickle of nostalgia — it is a calculated realignment.” For a sense of how potentially cataclysmic this will be for the US tech sector, imagine a Silicon Valley giant without its PRC-origin workers: the US’s competitive advantage in the sector would evaporate faster than is already happening. 

Retaining and attracting skilled workers is therefore perhaps the biggest challenge facing the US tech sector because it underpins multiple other concerns, ranging from competitiveness to innovation and AI integration. Collectively, this systemic risk demands a reckoning about whether US companies can continue with their famously “open” environments or reliance on the “soft power” draw of the United States. Indeed, this is not just a story about employees being coerced into returning to the PRC, although coercion can certainly play a role. Factors big and small are pulling PRC nationals home and pushing them out of the United States. These include  family decisions about being nearer to aging parents; rapidity of tech innovation in places like Shenzhen; and US government’s repeated hostility towards PRC citizens in the US tech sector. How US tech companies counter these factors, ranging from fast-tracking Green Card applications to additional benefits like promoting “internal entrepreneurship” and better work-life integration, will be central to countering what is otherwise an existential threat to the US economy.

Analysis

Compliance (or regulatory) risk involves the danger that a US company will suffer losses from a US government regulatory response to a company action—for example, transferring restricted technology to a particular Chinese company or state actor. China risk refers to the probability that a US firm will suffer a loss as a result of an action taken by a Chinese company or state actor—for example, theft of intellectual property from the firm.

On February 13, 2026, the US government posted and then quickly withdrew an updated Entity List of Chinese companies deemed to be aiding China’s military. Some US companies might believe it is safe to do business with the Chinese companies scrubbed from the list, but this conclusion is based on failing to understand the two different risks.

China risk exists independent of compliance risk. Regardless of whether a particular PRC company appears on any US government entity list, it, like all PRC companies and citizens, must cooperate with all PRC national security organizations, including the People’s Liberation Army (PLA) and the Ministry of State Security. This requirement is codified in Article 77 of the 2015 National Security Law and Article 7 of the 2017 National Intelligence Law, among other laws and regulations. Engagement with a PRC company therefore entails a degree of China risk, especially loss of IP or other valuable intangible assets. The fact that all PRC companies must aid China’s military if directed means that all USG entity lists are incomplete; they capture only those companies known to have previously supplied the PLA, but not other companies that are obligated to do so.

A US firm may decide to completely disengage from China based on concern about IP theft or penalties for compliance failures. However, that disengagement also involves an opportunity cost of forfeited rewards in the form of reduced profits and market share. Disengagement also imposes costs of compliance, such as hiring security personnel and ensuring that supply chains and customers are indeed free from China exposure. Moreover, as we detail in “Business Matters” below, new supply chain regulations in China make it increasingly difficult for firms to exit the Chinese market. 

Balancing all these risks and rewards to optimize profits is not simple. Decisions that are profitable in the short-term can create competitors and erode market share and profits over a longer period. Patrick McGee described this process in his book, Apple in China. Apple’s experience is hardly unique. China is so interwoven into the fabric of the US economy and so central to US national security that most companies need to identify, understand and calculate both their China and their compliance risks, and not only once, but on an ongoing basis, as an integral part of business operations. This is because technology, competition, the legal/regulatory environment, markets, and geopolitics evolve constantly. So too must business.

Analysis

The Trump administration’s imposition of tariffs on foreign partners has incentivized companies to trade less with the United States and more with alternative partners, including the PRC. Since the imposition of tariffs, Chinese overall exports recorded a record $1.189 trillion surplus (compared to around $800 million in 2024) while pivoting away from the United States towards alternative export destinations. By some estimates, Chinese exports increased 21.8% for January-February 2026 compared to the previous year, despite a 16.9% decrease in bilateral trade between the US and China to 609.71 billion yuan ($88.22 billion) over the same period. At the same time, US manufacturing output, investment, or job creation did not increase. This means that Chinese goods are now more prevalent in third countries and China is increasingly overtaking the United States in multiple global export markets. Collectively, US tariffs have therefore unintentionally helped China both find and exploit new markets, aiding Chinese manufacturers and PRC macroeconomic goals at the United States’ expense. 

China’s long-term goals include replacing the United States as a major trading partner worldwide. In part, as a purely economic matter, Chinese domestic overcapacity requires increasing the number and volume of trading partners outside of the PRC to compensate for low domestic consumption and to sustain growth. The broader political ambition, however, is to not only outcompete US companies around the world, but to put US companies out of business. Increasing the volume of external trading partners through a state-coordinated strategy is designed to insulate the Chinese economy from future US trade shocks while forcing world markets to rely permanently on Chinese firms at the expense of American competitors. For US small businesses, tariffs not only increase prices for foreign imports, but also create more challenging conditions for US businesses to compete abroad against Chinese state-backed firms. 

An increase in Chinese exports worldwide should be a red alert for China’s competitors worldwide. China is a master of “corporate hostage taking,” which involves bullying corporations to align with Chinese political and economic policies under threat of losing access to China’s markets. The CCP is also adept at using aggressive private sector practices honed within China in foreign markets.These include using state subsidies to promote intense corporate competition within a sector. Chinese exports are therefore not just about flooding foreign markets with cheaper products, they are fundamentally intended to put foreign companies out of business.

The CCP’s new supply chain regulations further underscore the threat to foreign businesses in China: the CCP can now legally investigate and impose countermeasures on foreign companies that “threaten” China’s industrial supply chains or even conduct their own research into China-based supply chains. (As always, the passage of a law in China is about communicating policy intent. The CCP does not require legal authority to do anything.) In short, China is trying to stop decoupling by telling foreign companies and governments “do business with us or else.” This is not new. China has long targeted foreign businesses. But the formalization of these regulations adds a compliance risk for global companies that span the US and China: not doing diligence and remaining in China risks falling foul of US regulations; doing diligence and leaving China risks punishment by Chinese regulations. This does not mean that US companies should stop doing diligence in China. Instead, while evidence of conducting such research may risk legal punishment, companies also could not do diligence work and still be accused of having “ditched” a Chinese supply. Between US tariffs, increased Chinese global exports, and the legal Catch-22 with supply chains, US businesses therefore face a risky future.

Analysis

The Hong Kong Stock Exchange (HKEX) has hit a five-year high, recording US$13.3B in proceeds and at least 40 companies completing IPOs by the end of Q1.  AI companies are largely responsible for this growth, as they rush to list and, in turn, gain access to not just more, but more diverse and global investment. These companies are motivated, in addition, by new government incentive structures, corporate restructurings, and changing market regulations. The result is a newly emerging tech market in China that foreign investors and competitors must take into account.

From the government side, Beijing’s Fifteenth Five-Year Plan has designated seven advanced tech sectors for targeted investment and growth. These include semiconductor, AI, and quantum technologies. The Plan accompanied these designations with a new National Venture Guidance Fund, which has allocated US$17.5B across three regional investment vehicles covering Beijing-Tianjin-Hebei, the Yangtze River Delta, and the Guangdong-Hong Kong-Macao Greater Bay Area. China’s stated goal of achieving self-sufficiency in these fields has set targets that, if realized, will shut foreign companies out of Chinese markets; whether or not these goals can be reached remains unclear.

Companies are also starting to consider corporate restructuring to pursue access to such funds. For instance, Moonshot AI, one of China’s most promising startups, is currently considering changing its structure to become eligible to pursue an IPO on the HKEX. Moonshot AI, like many other Chinese tech companies, is a Red-chip company, meaning that it is incorporated outside China (in this case, the Cayman Islands) despite operating primarily in China; the Chinese government also holds a significant stake in red-chip companies. The China Securities Regulatory Commission, however, has announced changes that require these companies to redomicile in China and unwind before attempting to list on the HKEX. In short, as AI or other tech companies seek access to these new government funds, they will also have to bring themselves more clearly under Beijing’s regulatory control. 

This is not all bad news for companies like Moonshot AI, however, as other recent reforms seek to ease their transition. Recent revisions to ChiNext–a venture-stock exchange under the Shenzhen Stock Exchange–have relaxed standards for listing and, therefore, opened pathways for previously ineligible but promising start-ups to seek foreign investors. Specifically, these new standards allow AI and other key tech companies that have not yet turned a profit but show the promise of doing so to apply to list (assuming they can meet additional criteria about annual revenue and/or investment in research and development). 

Taken collectively, the government’s new directives are already changing the tech industry by creating new funds and incentives in critical industries, coaxing foreign-domiciled companies to return to China in order to access those funds, and then offering those companies fast-tracked access to international investment to sweeten the deal. US investors and companies alike should be prepared for massive capital injections into Chinese competitors and the increased regulatory risk that may signal, as existing companies restructure to take advantage of those funds.

Analysis

Advanced AI is reshaping the landscape of cyber intrusions. The emergence of models like Mythos marks a shift from labor-intensive to scalable and automated activity. As these systems improve, they lower the cost and difficulty of sophisticated attacks, which in turn allow a broader range of actors to participate. Mythos therefore changes the underlying economics of cyber attacks and increases the likelihood of more frequent and widespread operations.

Advanced AI models can identify vulnerabilities, generate exploits, and automate reconnaissance in minutes. These capabilities compress timelines and reduce the expertise required to conduct sophisticated operations, including ransomware, sabotage, and economic and state-on-state espionage. Activities that once required specialized teams can now be carried out by smaller groups or individuals with access to powerful models. 

The US government is responding with urgency. Senior officials have engaged financial institutions and federal agencies to assess exposure, while the White House is preparing controlled pathways for government use of Mythos. Anthropic has reduced the cyber capabilities of publicly available models as it evaluates how to deploy more advanced systems safely. These steps may limit near-term risk, but they do not resolve the underlying issue. Once these capabilities reach a certain level, they become difficult to contain and will continue to diffuse across actors. 

Even without diffusion from Anthropic, other actors will catch up and develop these capabilities themselves. Mythos will most certainly trigger an arms-race mentality in Beijing. China is likely to integrate similar capabilities into its existing state-directed intelligence framework. Beijing’s system allows for close coordination among technology firms, intelligence services, and regulators. This structure enables controlled deployment while directing capabilities toward AI enabled espionage on state-priority targets. Conversely, the US operates within a more open network, where advanced tools spread more quickly across private and public actors, increasing both innovation and vulnerability. If China develops similar capabilities, US companies will face a behemothic threat from the CCP–acting through Chinese companies–armed with the new cyber weapons of the AI age.  

It remains unclear whether current safeguards can meaningfully stop the most capable actors. Access controls and monitoring may slow misuse, but they are unlikely to stop determined state sponsored operations or actors driven by strategic or financial incentives. The rewards remain high, while the barriers to entry continue to fall. US companies and critical infrastructure operators should assume that cyber attacks will become more persistent and adaptive. Attackers will automate targeting and refine techniques in real time. Firms cannot rely on external controls as a primary defense. Internal systems must detect abnormal behavior, segment sensitive data, and respond quickly to emerging threats.